QIAGEN Reports First Quarter 2013 Results
News May 02, 2013
QIAGEN N.V. has announced results of operations for the first quarter of 2013, delivering innovation and growth in a challenging business environment.
"Our results for the first quarter of 2013 show the ability of QIAGEN to grow amid challenging conditions. Our sales to customers in Molecular Diagnostics showed solid growth, and the improved performance was supported by Applied Testing and all regions delivering growth that more than compensated for soft conditions in Academia given government funding concerns in various markets and in particular sequestration in the United States," said Peer M. Schatz, Chief Executive Officer of QIAGEN N.V.
Schatz continued, "Our portfolio of growth drivers - which include the QIAsymphony automation platform, the QuantiFERON-TB latent tuberculosis test and our Personalized Healthcare franchise - is building momentum and showed significant gains as Molecular Diagnostics delivered double-digit growth.
"QIAGEN's commitment to growing through innovation is strong. We are preparing QIAGEN's next-generation sequencing solutions for clinical research and diagnostics, and Ingenuity Systems adds a leading solution for the analysis and interpretation of complex biological data to our ecosystem for molecular testing. Our development pipeline of more than 35 diagnostic assays is advancing, and key submissions are planned for 2013 and 2014, especially for infectious disease tests in Profiling and companion diagnostics in Personalized Healthcare. As we seek new ways to improve efficiency and effectiveness, QIAGEN is well-positioned to achieve its goals for 2013 and advance our mission of making improvements in life possible."
First quarter 2013 results
Net sales grew 3% CER at constant exchange rates (CER) in the first quarter of 2013, led by the Molecular Diagnostics (+11% CER) and Applied Testing (+5% CER) customer classes, more than offsetting lower contributions in Pharma (-4% CER) and Academia (-4% CER).
The ongoing product portfolio generated 2% CER growth, while AmniSure (acquired in May 2012) provided an additional percentage point. Currency movements had a negative impact of one percentage point on reported sales due to weakness of the Japanese yen against the U.S. dollar (reporting currency).
Operating income declined 20% to $29.1 million in the first quarter of 2013 compared to $36.5 million in the first quarter of 2012. Adjusted operating income, which excludes items such as restructuring and acquisition-related costs, share-based compensation and amortization of intangible assets, was down 2% to $78.4 million from $80.3 million in the first quarter of 2012. The adjusted operating income margin declined to 26% of net sales from 27% in the year-ago period.
Net income attributable to owners of QIAGEN N.V. amounted to $20.0 million in the first quarter of 2013 compared to $28.6 million in the year-ago period. Diluted EPS was $0.08 (based on 241.5 million diluted shares) compared to $0.12 in the year-ago period (238.9 million diluted shares), and due mainly to higher amortization and business integration expenses compared to the same period in 2012.
Adjusted net income attributable to owners of QIAGEN N.V. was largely unchanged at $54.7 million compared to $54.8 million in the 2012 quarter, and adjusted diluted EPS was also unchanged at $0.23 in the first quarter of 2013 compared to the year-ago period.
Cash and cash equivalents at March 31, 2013, declined to $372.8 million from $394.0 million at December 31, 2012. Net cash provided by operating activities amounted to $45.9 million at the end of the first quarter of 2013, up from $11.1 million at the end of the same period of 2012, with free cash flow significantly improving to $30.1 million from negative free cash flow of $7.7 million. Net cash used in investing activities at the end of the first quarter of 2013 was $23.2 million, less than the $25.0 million of net cash used in the same period of 2012.
Net cash used by financing activities was $40.1 million at the end of the first quarter of 2013, mainly due to the share repurchase program, compared to cash provided by financing activities of $11.2 million in the year-ago period.
Reconciliations of reported results in accordance with U.S. generally accepted accounting principles (GAAP) to adjusted results are included in the tables accompanying this release.
"Our healthy financial position provides QIAGEN with resources to support attractive business expansion opportunities, and the acquisition of Ingenuity Systems fits into our strategy of integrating new technologies that can catalyze value creation across our portfolio of Sample & Assay Technologies," said Roland Sackers, Chief Financial Officer of QIAGEN N.V.
Sackers continued, "We were pleased with the positive reception of our recently completed $100 million share repurchase program. This program and the acquisition of Ingenuity Systems, are examples of our capital allocation strategy, committed to creating value for shareholders and supporting QIAGEN's business expansion. We are on track to deliver higher sales and adjusted earnings in 2013 and further improve profitability."
All regions delivered growth at single-digit CER rates in the first quarter of 2013, led by the Europe / Middle East / Africa region (+4% CER, 34% of sales). The Americas (+2% CER, 47% of sales) also generated growth driven by Molecular Diagnostics. In Asia-Pacific / Japan (+3% CER, 18% of sales), China and India provided important growth contributions, while sales in Japan were down slightly, as the distribution of some academic research funds was postponed to later in 2013. Sales in the top seven emerging markets rose about 19% CER and represented 11% of total sales.
Consumables and related revenues (+4% CER, 89% of sales) rose on the double-digit advance in Molecular Diagnostics and solid single-digit growth in Applied Testing, which more than offset modest declines in Pharma and Academia.
Instrument sales (-3% CER, 11% of sales) rose in Pharma, but declined in Academia due to uncertain government funding conditions in the U.S. and other countries and were slightly lower in Applied Testing. QIAGEN continued its strong pace of placements for the QIAsymphony automation platform, building on the year-end 2012 installed base of more than 750 and set to surpass 1,000 placements during 2013. The ongoing transition to reagent rental agreements, where sales are recognized over a multi-year period, led to a single-digit CER decline in Molecular Diagnostics.
An overview of performance in QIAGEN's four customer classes (based on total sales results including organic growth and acquisitions at CER):
• Molecular Diagnostics (Q1 2013: +11% CER, 50% of sales) reported solid growth in the first quarter of 2013 based on double-digit CER improvement in consumables, while instrument sales were lower due mainly to the focus on QIAsymphony placements under multi-year reagent rental agreements. In Prevention, the QuantiFERON-TB test for detection of latent tuberculosis (TB) continued to deliver 20% CER growth on successful market penetration initiatives in the U.S. and Europe. Sales of products for HPV testing (-2% CER, 17% of sales) declined at a mid-single-digit CER rate in the U.S., where pricing pressure continues amid implementation of multi-year customer agreements, but showed growth in other regions. Sales in products related to Profiling rose at a healthy double-digit CER pace on increasing consumables use on QIAsymphony automation platforms. Personalized Healthcare sales were also higher in the first quarter of 2013. In Point of Need, the AmniSure assay for premature rupture of fetal membranes in pregnant women continued its rapid growth pace.
• Applied Testing (Q1 2013: +5% CER, 8% of sales) provided high-single-digit CER growth in consumables on steady business expansion in all three areas - human identification / forensics, veterinary medicine and food safety. The European horsemeat scandal generated demand, providing additional growth impulses and awareness about the benefits of molecular food testing and QIAGEN's strong position and product offering which significantly increased over the last two years in this customer class. Instrument sales were slightly lower against a very strong performance in the first quarter of 2012 when the rollout of the QIAsymphony automation platform began to these customers.
• Pharma (Q1 2013: -4% CER, 18% of sales) showed growth in Asia-Pacific / Japan, but lower results in the Americas and EMEA regions due to the impact of restructuring activities and site consolidations among some customers that has continued from 2012.
• Academia (Q1 2013: -4% CER, 24% of sales) experienced lower sales of both consumables and instruments, primarily due to concerns about reduced government funding trends in various markets, including the implementation of the U.S. government sequestration that took effect in March. Academia sales were also weaker in Europe as well as in some markets in the Asia-Pacific / Japan region outside of China. QIAGEN estimates that the reduced government funding environment, particularly in the U.S., could lead to a reduction in full-year 2013 consolidated sales growth of at least 1 percentage point.
Accelerating innovation and growth in 2013
QIAGEN is moving ahead, amid challenging market conditions, to accelerate the pace of innovation and growth in 2013. Building on the progress of strategic initiatives to leverage QIAGEN's leadership in Sample & Assay Technologies across all customer classes, goals for 2013 focus on continuing to drive platform success, add test content for use in all customer classes and broaden QIAGEN's geographic presence. Additional goals are to deliver efficiency and effectiveness through better resource allocation, improve QIAGEN's position as an employer of choice and enhance customer experience.
Among recent developments in 2013:
Creating leadership in biological data interpretation: QIAGEN announced on April 29 its acquisition of Ingenuity Systems, Inc., the leading provider of solutions to quickly and accurately analyze and interpret genomic data, for $105 million in cash. New technologies such as next-generation sequencing (NGS) are generating growing volumes of complex biological data, making analysis and interpretation critical for success in research and diagnostics. Ingenuity's solutions significantly expand the capabilities of QIAGEN's ecosystem for efficiently turning raw biological samples into valuable and actionable information that is scientifically and clinically relevant.
Next-generation sequencing workflow: QIAGEN's strategy to make NGS a routine, cost-effective tool for clinical research and diagnostics received very positive feedback from potential customers at the annual Advances in Genome Biology and Technology (AGBT) meeting in February 2013. QIAGEN is moving forward with plans to begin placing its sample-to-result NGS workflow, building on existing QIAGEN instruments and the transformational GeneReader benchtop sequencer, with selected customer groups in the second half of 2013.
Influenza: As with influenza outbreaks in the past, QIAGEN is actively supporting efforts to monitor the spread of the A(H7N9) influenza strain and preparing various influenza screening and related assays for use in veterinary and human diagnostic settings. QIAGEN is working closely with Chinese government agencies to support its influenza surveillance measures. The A(H7N9) influenza virus is a serotype of the avian influenza virus, or bird flu virus, which so far has been reported exclusively in Asia, and predominantly in China, according to the U.S. Centers for Disease Control (CDC). In the U.S., QIAGEN's Sample & Assay Technologies - consumables and instruments - form key components of a PCR-based A(H7N9) influenza virus assay from the CDC that recently received emergency authorization by the FDA.
QIAsymphony: QIAGEN is on track to surpass 1,000 placements during the course of 2013 for the QIAsymphony automation platform, the industry's first modular sample-to-result system that runs commercial assays and a broad range of laboratory-developed tests. In the first quarter of 2013, a new software package, QIAlink, was launched to automate data handling between QIAsymphony and all laboratory information management systems (LIMS).
Personalized Healthcare expansion: QIAGEN continued to advance its leadership in companion diagnostics. Following U.S. regulatory approval in July 2012, the therascreen KRAS RGQ PCR Kit for colorectal cancer patients has so far been adopted by many U.S. laboratories, including Clarient, the leading U.S. provider of cancer laboratory testing. QIAGEN is working with the FDA on review of the therascreen EGFR RGQ PCR Kit in non-small cell lung cancer (NSCLC), which was submitted for U.S. regulatory approval in late 2012. QIAGEN continues to strengthen relations with its pharma co-development partners, having entered into a master collaboration agreement with Eli Lilly and Company in February 2013 that provides a framework for future projects. This agreement builds on past work together, particularly for U.S. approval of the therascreen KRAS test.
Adding innovative content: Research and Development spending increased 20% in the first quarter of 2013 to support the development of important assays that will expand the content menu in Molecular Diagnostics and the other customer classes, particularly for use on the QIAsymphony automation platform. In the first quarter QIAGEN launched the careHPV Test in China, the world's first molecular diagnostic to screen for high-risk human papillomavirus (HPV) in low-resource settings such as areas lacking electricity, water or laboratories. It is highly complementary with the digene HPV Test, widely used in developed clinical settings.
Efficient and effective growth: Based on successful completion of the U.S. regulatory submissions for the KRAS and EGFR companion diagnostics, QIAGEN will consolidate all Molecular Diagnostics regulatory activities into a global hub in Manchester, U.K., a key site for Personalized Healthcare activities. This creates a seamless verification and validation process for final stages of development, particularly on assays for the QIAsymphony platform. The Hamburg, Germany, site is planned to be closed, and key projects transferred to Manchester. QIAGEN continues to make good progress on these initiatives, and the majority of restructuring efforts are expected to be completed by the end of the second quarter of 2013.
QIAGEN completes $100 million share repurchase program
QIAGEN was very encouraged by the reception of its initial $100 million share repurchase program, which was completed on March 29, 2013. A total of 5.07 million shares were repurchased on the Frankfurt Stock Exchange and on NASDAQ at volume-weighted average price of EUR 14.59 and $20.00 per share, respectively. Repurchased shares are held in treasury in order to satisfy various obligations for exchangeable debt instruments and/or employee share-based remuneration plans. QIAGEN intends to ask shareholders at the next Annual General Meeting of Shareholders on June 26, 2013, for a new annual authorization providing the right to conduct repurchases for up to 10% of the share capital. The Supervisory Board and Managing Board in the future will continue to evaluate the possibility for new share repurchase programs as an element of QIAGEN's capital allocation strategy.
QIAGEN continues to expect to deliver improved results in 2013, having updated targets for adjusted net sales and adjusted diluted earnings per share for the full year to incorporate the impact of new developments during the first quarter. QIAGEN currently expects reduced government funding, including the implementation of sequestration in the U.S., to have an adverse impact of at least 1 percentage point on adjusted net sales growth in 2013, while the acquisition of Ingenuity is expected to provide adjusted net sales of approximately $15 million to QIAGEN in 2013. As a result of these factors, QIAGEN expects adjusted net sales to grow approximately 5% CER in 2013. QIAGEN also now expects adjusted diluted EPS of approximately $1.13 for full-year 2013, which includes dilution of $0.03 per share from the Ingenuity acquisition. For the second quarter of 2013, QIAGEN expects adjusted net sales to grow approximately 1-2% CER and for adjusted diluted EPS of approximately $0.25, and for faster adjusted net sales and adjusted earnings growth rates in the second half of the year. These expectations do not take into account any additional acquisitions that could be completed in 2013.